phyllisjw Posted March 15, 2021 Report Share Posted March 15, 2021 Taxpayer withdrew $100K from his 401K without penalty due to COVID and chooses to spread out for 3 years. He also has $21K in unemployment compensation. Without the deferral his income is over $150K with the deferral of $33K he is under $150K. Does he qualify to use the $10,200 deduction? 1 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 15, 2021 Report Share Posted March 15, 2021 3 minutes ago, phyllisjw said: Taxpayer withdrew $100K from his 401K without penalty due to COVID and chooses to spread out for 3 years. He also has $21K in unemployment compensation. Without the deferral his income is over $150K with the deferral of $33K he is under $150K. Does he qualify to use the $10,200 deduction? Great question. Tom Modesto, CA Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 15, 2021 Report Share Posted March 15, 2021 Yes. Send the $33K back to the 401K and your client will benefit from the $10,200 tax free unemployment AND he will qualify for the stimulus signed on Thursday. Quote Link to comment Share on other sites More sharing options...
phyllisjw Posted March 16, 2021 Author Report Share Posted March 16, 2021 Send the $33K back to the 401K? I don't understand what you mean. Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 16, 2021 Report Share Posted March 16, 2021 2 minutes ago, phyllisjw said: Send the $33K back to the 401K? I don't understand what you mean. I misread your post. So your client is deciding to pay taxes in 2020 on $100K from 401k? Or you are talking about investing back $33K to his 401k? Deferring could mean that your client wants to put back $33K to his 401k and as a result he is deferring payment of taxes until he takes it out. Deferring could also mean that he wants to pay taxes on $33.33K in 2020, same amount in 2021 and the last amount in 2022. Unless there are compelling reasons, I suggest my people to divide it in three years if the distribution was more than $30K. I run the numbers for them and when the amount is $15K or less, most people say, "I want to pay taxes in the whole amount in 2020". Also, if your client has the money to pay taxes on $100K on top of W-2 and unemployment income, it might be a good idea to use that tax money to reinvest it on the 401k after splitting 1/3, 1/3, 1/3 in 2020, 2021, 2022 irrespectively. Quote Link to comment Share on other sites More sharing options...
Lee B Posted March 16, 2021 Report Share Posted March 16, 2021 3 hours ago, phyllisjw said: Taxpayer withdrew $100K from his 401K without penalty due to COVID and chooses to spread out for 3 years. He also has $21K in unemployment compensation. Without the deferral his income is over $150K with the deferral of $33K he is under $150K. Does he qualify to use the $10,200 deduction? I think your client will qualify for the UCE. The total $ 100 k will go to line 5a and the one third will go to line 5b which flows into the MAGI used for calculating the UCE. Quote Link to comment Share on other sites More sharing options...
phyllisjw Posted March 16, 2021 Author Report Share Posted March 16, 2021 My client took a $100K penalty free distribution due to COVID from his 401K and wants to pay taxes over three years. He also has unemployment compensation. Since the deferral will lower his taxable under $150K does he qualify for the reduction in unemployment and stimulus? Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 16, 2021 Report Share Posted March 16, 2021 Yes and yes Quote Link to comment Share on other sites More sharing options...
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